Hidden in plain sight – the value of green spaces

jardin public

By Heather Cameron

They may be something most of us see every day but take for granted – the area of green space we pass on our way to work or frequent in our lunch break. And although we might make use of such spaces on a regular basis, is the true value of them really understood?

As highlighted by a recent report from the Land Trust, green spaces provide even more to society than we often think about.

Wider value

It has long been recognised that green spaces provide multiple benefits to communities and wider society, but there has been limited robust evidence on their wider economic value. The Land Trust report highlights that the services delivered by soil, grass, flowers, trees and water provide society and the economy with significant benefits.

It suggests that several important functions are provided by these green spaces, including:

  • Reducing and preventing flooding
  • Cleaning our water
  • Storing and removing carbon
  • Cleaning our air, reducing air pollution

Such functions help to alleviate costs to local and wider communities, such as to the health service, other public services and local businesses. Previous research has similarly alluded to such benefits.

Independent research by UK scientists in 2011 highlighted the true value of nature in relation to the economic, health and social benefits, estimating that it was worth billions of pounds to the UK economy.

Other research has also shown that green space has been linked to reduced levels of obesity in children and young people, and that access to open spaces is associated with higher levels of physical activity and reductions in a number of long-term conditions such as heart disease, cancer, and musculoskeletal conditions.

The proportion of green and open space is also linked to self-reported levels of health and mental health, through improved companionship, sense of identity and belonging and happiness. And living in areas with green spaces is associated with less income-related health inequality, thereby reducing the effect of deprivation on health.

What the Land Trust’s report does differently, is demonstrate these widely recognised benefits in physical and monetary terms to help create a greater understanding of the economic contribution of well-managed green spaces.

Natural capital accounting

A ‘natural capital accounting’ approach was taken to translate these benefits into financial terms, taking consideration of the physical land, its quality, how it is managed, used and the functions it performs.

Two different parks – Silverdale Country Park in the Midlands and Beam Parklands in London – were used in the study to demonstrate this value. Overall, Silverdale’s annual natural capital value was estimated to be £2.6 million, with a return on investment of £35 for every £1 invested, while Beam Parklands’ natural capital value, based on a 99 year period, has been valued at £42 million – an increase of £21 million since 2009.

Other benefits provided by Silverdale include:

  • Nearly £400,000 per year of flood risk reduction benefits
  • An annual value of £82,000 for the park and its maintenance to retain and purify water
  • A wider annual value of £840,000 of absorbed and stored carbon
  • A potential increase of 113% in local air pollution absorption since 2011

Other benefits provided by Beam Parklands (primarily a flood defence) include:

  • Nearly £600,000 per year of flood risk reduction benefits
  • Nearly £800,000 per year of educational and health benefits to the local community

As two well-maintained green spaces, they indicate the importance of long-term investment.

Final thoughts

Perhaps these financial values will help people to better comprehend the true value of our green spaces. As the report notes, it is important to remember that they are “not ‘one off’ monetary values or price tags” but rather an indication of what our green spaces are worth and their benefits to both society and the economy.

Put simply, as the Land Trust concludes, “green spaces… are valuable to society”.


If you enjoyed reading this, you may also like our previous articles on pocket parks and green spaces.

Follow us on Twitter to see what developments in public and social policy are interesting our research team. 

The 5G arms race: the UK’s strategy to become a global leader in 5G technology

By Steven McGinty

On 8 March, the UK Government published their strategy for developing 5G – the next generation of wireless communication technologies.

Released on the same day as the Spring Budget, the strategy builds on the government’s Digital Strategy and Industrial Strategy, and sets out the government’s ambition to become a global leader in 5G.

Accelerating the deployment of 5G networks, maximising the productivity and efficiency benefits to the UK from 5G, creating new opportunities for UK businesses, and encouraging inward investment, are the strategy’s main objectives.

If the UK makes progress in these areas, the strategy argues, 5G infrastructure has the potential to become an enabler of smart city technologies, such as autonomous vehicles and advanced manufacturing, and to support the expansion of the Internet of Things – the interconnection of people, places, and everyday objects.

5G Innovation Network

Although the strategy highlights the enormous potential of 5G, it makes clear that 5G technologies are still in development, and that the majority of funding will need to come from the private sector.

To support the growth of a commercial market, the strategy explains, a new 5G trials and testbed programme will be introduced – through a national 5G Innovation Network – to coordinate the development of 5G services and applications. This programme will help government and private sector partners understand the economics of deploying 5G networks, ensuring that technologies can he delivered in a cost-effective way, and enabling best practice to be captured and knowledge disseminated.

The government is investing an initial £16m into the programme (involving partners such as UK Research and Innovation and the Government Digital Service), and has targeted a trial of end-to-end 5G (high speed connectivity without the need for intermediary services) by 2018. In February, Ericsson announced that they had a successful end-to-end 5G trial in Sweden, alongside partners SK Telecom Korea.

Improving regulations

To support the development of 5G, the strategy suggests that there may need to be regulatory changes, particularly in the planning system. As such, the government has committed to reviewing current regulations before the end of 2017, and then to conduct regular reviews, as partners learn more from their 5G trials.

Local connectivity plans

The strategy highlights the important role local regions play in the deployment of mobile technologies, and explains that the government will be consulting with councils on how planning policies can be used to provide high quality digital infrastructure.

However, it also suggests that there may be a case for introducing ‘local connectivity plans’, which would outline how local areas intend to meet their digital connectivity needs. Interestingly, the strategy highlights that evidence, such as local plans, may be taken into account when the government is making funding decisions for local infrastructure projects.

Coverage and capacity, infrastructure sharing, and spectrum

The strategy accepts that the move towards 5G won’t be as straightforward as the move from 3G to 4G. Instead, 5G technology will be developed alongside the expansion of the 4G network.

In addition, the government has accepted the recommendations of the National Infrastructure Commission (NIC)’s ‘Connected Future’ report, which states that unnecessary barriers to infrastructure sharing between telecommunications companies must be tackled. The strategy states that it will explore options for providing a clearer and more robust framework for sharing.

Increasing the available radio spectrum was also highlighted as key to developing 5G technology. The strategy notes that the government will work with Ofcom to review the spectrum licensing regime to help facilitate the development of 4G and 5G networks.

5G strategy’s reception

Natalie Trainor, technology projects expert at law firm Pinsent Masons, has welcomed the new 5G strategy, explaining that:

“…technology and major infrastructure projects will become much more interlinked in future and that the plans outlined can help the UK take forward the opportunities this will present.”

In particular, Ms Trainor sees the establishment of the Digital Infrastructure Officials Group – which will bring together senior staff from across departments – as a way of providing greater awareness and co-ordination of major public projects that involve digital infrastructure. Ms Trainor also hopes that the new group will encourage the Department for Transport and the Department for Culture, Media & Sport (DCMS) to work with industry to develop digital connectivity on the UK’s road and rail networks.

Professor Will Stewart, Vice President of the Institution of Engineering and Technology, similarly welcomes the new strategy but highlights that the funding announced will ‘not come anywhere close’ to the investment required to deliver 5G across the UK. In addition, he also makes it clear that coverage and regulatory change will be vital, stating that:

The biggest challenge for government will be improving coverage for all, as 5G cannot transform what it doesn’t cover. And achieving universal coverage for the UK, outside high-capacity urban areas, will not be affordable or achievable without regulatory change.”

Former Ofcom director and author of The 5G Myth, Professor William Webb, has also applauded the government’s plans, even though he is an outspoken critic of the 5G industry. For Professor Webb, the strategy recognises that we are in the early stages of 5G technology, and that there is still a need to develop 4G networks.

Final thoughts

5G technology provides the UK with the opportunity to become a genuinely smart society. Yet, as the strategy acknowledges, 5G is still in its infancy and the idea of a 5G network across the UK is a long way down the road.

The new 5G strategy includes a number of positive steps, such as listening to the recommendations of the NIC report, and exploring the realities of deploying 5G networks. This cautious approach is unlikely to show any significant progress in the short term, but does provide a focal point for academia, government, and industry to rally around.


Follow us on Twitter to see what developments in public and social policy are interesting our research team. If you found this article interesting, you may also like to read our other smart city articles.

‘Olderpreneurs’ – the new generation of start-ups?

Senior Man on Laptop_Fotolia_61314537_XXL.jpg

By Heather Cameron

Entrepreneurs are often portrayed as bright young things launching start-ups, but does the reality of start-up demographics paint a different picture?

Changing demographics

The UK has certainly witnessed a boom in young entrepreneurship in recent years – the number of under-35s starting businesses in the UK rose by more than 70% between 2006 and 2014.

However, recent research suggests that the boom in young entrepreneurs may be waning. According to research commissioned by Google earlier this year, the majority of young people are “not interested” in starting a business, with four out of five young people surveyed saying they would rather work for a well-established company. Particular concerns were also highlighted over risk and instability.

The UK is, however, still ranked in the top 10 countries with the most favourable conditions for entrepreneurs to start and scale new businesses. And official data suggests that the UK continues to see record numbers of business start-ups, exceeding 600,000 in 2015, up on the previous two years.

So if it isn’t the younger generation heading up this record number, who is it?

‘Olderpreneurs’

Despite media coverage of the entrepreneurial spirit of the younger generation, the average age of an entrepreneur in the UK has actually been estimated at 47.

And according to the latest data from the Global Entrepreneurship Monitor (GEM), the most notable increase in entrepreneurial activity has been amongst the over 50 age group.

Referred to as ‘olderpreneurs’, this group could arguably be the new start-up generation.

There has been a 46.5% increase in freelancers over 50 since 2008, an age group that accounts for 72% of all self-employed people. According to official statistics there are around 1.8 million self-employed people over the age of 50 in the UK.

With an ageing population that is also becoming healthier, perhaps this shouldn’t be such a surprise.

Motivations

Motivations for people starting up their own businesses include redundancy, retirement, family circumstances, growing older and life stage milestones.

As life expectancy increases, many don’t want to give up work at the traditional retirement age, as they still lead active lives. Retirement has been cited as an ‘important tipping point’ for some, with the main motivation not to make money or grow their business, but rather something to keep them occupied or earn some extra money while doing something relatively easy.

The introduction of pension freedoms last year has also led to more over 50s using their pensions to fund new business ventures. The over 55s cashed in more than £4.7billion of their pensions in the first six months after pension freedoms were introduced.

Economic impact

And such activity is good news for the economy. It has been suggested that if the employment rate of 50-64 year olds matched that of the 35-49 age group, the UK economy could be boosted by £88 billion.

Older entrepreneurs have also been shown to be more successful than their younger counterparts. It has been highlighted that businesses run by owner-managers over 50 drive up revenues at their companies three-and-a-half times faster than GDP growth – 11.5% compared with 3.1%.

And older entrepreneurs create jobs at a rate more than seven times faster than the UK economic average.

It has also been suggested by the Prince’s Initiative for Mature Enterprise (PRIME) that start-up failure rates in this age bracket are remarkably low. It recently revealed that 95% of its members were still in business a year or more after starting up, compared to the national average of just 66%.

Final thoughts

A significant percentage of the UK population is past retirement age. And the number of people aged 50 to State Pension age is expected to rise by 3.2 million, while the number aged 16 to 49 will have reduced by 200,000 over the next 10 years.

As a result, keeping this group economically engaged surely has to be a priority.


If you found this article interesting, you may also like to read our previous articles on entrepreneurship and self-employment

Follow us on Twitter to see what developments in public and social policy are interesting our research team. 

Who’s afraid of the big, bad robot? Preparing the labour market for a future with AI

massive production

By Heather Cameron

Science fiction is slowly becoming science fact”. This is what the interim Chair of the government’s Science and Technology Committee said in their recently published report on robotics and artificial intelligence (AI).

While admitting there is still some way to go before we witness systems and robots like those portrayed in the creative arts such as Star Wars and Ex Machina, the report noted that there have been a series of recent advances across these fields that are beginning to have transformational impacts.

But just what will these impacts look like, particularly in relation to the labour market?

‘Transformational impacts’

Driverless cars and supercomputers that assist with medical diagnoses are highlighted as some of the transformational impacts of AI that have already arrived.  Others include improved automated voice recognition software and predictive text.

The increase in processing power, the wealth of data and the development of techniques such as ‘deep learning’ have all contributed to the recent progress.

However, the report also notes that such advances raise a number of social, ethical and legal questions that require consideration. These include issues about the transparency of AI decision-making as well as privacy and safety.

And while there is much excitement about the potential of AI to improve and enhance our lives, there is also widespread concern over the potential impact of increasing automation on the workplace.

Implications for employment

Fears over increased unemployment as a result of increasing automation are longstanding. The inquiry found conflicting views over the potential impact to the workforce, with some predicting a rise in unemployment, while others anticipate a transformation in the type of employment available.

It is likely that some occupations will become obsolete. Deloitte has warned that 11 million jobs across the UK economy are at high risk of being automated by 2036, with the retail and transport sectors most vulnerable. The research also indicated that almost 750,000 net jobs had been lost in manufacturing since the turn of the millennium, while the wholesale and retail sector saw net job losses of 338,000.

However, it was noted that millions of new roles had also been created in order to meet changing demand. So perhaps it is adaptation within the workforce that is needed.

Indeed, the Committee’s report highlights a need to focus on delivering the skills needed for people to adapt and thrive as new technology continues to emerge. It has been argued elsewhere that cognitive and social and behavioural skills should be made a priority in any skills strategy for the 21st century to “make workers more resilient to technology-driven labor market shocks like automation.”

And of course some sectors may be more susceptible than others.

Recent research by McKinsey suggests that the impact of automation differs dramatically across sectors and activities. It found that:

While automation will eliminate very few occupations entirely in the next decade, it will affect portions of almost all jobs to a greater or lesser degree, depending on the type of work they entail. Automation, now going beyond routine manufacturing activities, has the potential, as least with regard to its technical feasibility, to transform sectors such as healthcare and finance, which involve a substantial share of knowledge work.”

Another common theme highlighted throughout the inquiry was that robotics and AI could increase productivity and efficiency. One recent study estimated that ‘£1.24bn in automation investment could raise the overall value added by the manufacturing sector to the UK economy by £60.5bn over the next decade’.

Future

There are clearly many debates about the potential impact of robots and AI, but it is not yet clear what the actual impact of advances in these fields will be on the labour market.

What is clear is that there is a need for skills to be developed for a world where AI is more prevalent.

But as the inquiry highlighted, the government doesn’t yet have a strategy for developing these new skills or responding to the social and ethical issues it poses. The report therefore recommends that “the government must commit to addressing the digital skills crisis through a Digital Strategy, published without delay.”

Perhaps the future will be similar to the past, as written evidence to the inquiry suggests:

During the industrial revolution, mechanisation did not change long-run equilibrium employment because new jobs emerged which were unimaginable at that time. Similarly, jobs lost to automation today might be replaced by jobs we cannot yet imagine.


Follow us on Twitter to see what developments in public and social policy are interesting our research team.

Gender pay gap – will it ever close?

égalité des sexes

By Heather Cameron

Last Thursday was labelled ‘Equal Pay Day’ – the last day of the year women effectively stop earning relative to men – just one day later than the previous year.

According to the Fawcett Society, this means women are in effect ‘working for free’ until the end of the year as a result of the gender pay gap.

Given that it is 46 years since the Equal Pay Act was introduced ‘to prevent discrimination, as regards terms and conditions of employment, between men and women’, it is dispiriting that considerable inequalities remain between men and women’s pay.

How much of a gap?

The Fawcett Society has calculated the current gender pay gap for full-time workers at 13.9%.

Recent research by Deloitte suggests that the gender pay gap will not close until 2069 unless action is taken to tackle it now. It shows that the hourly pay gap between men and women is closing at a rate of just 2.5 pence per annum, and in some cases is even widening.

The study also notes that men receive considerably higher average pay even in female-dominated occupations, such as teaching and caring.

And new research from New Policy Institute (NPI) found that, although things have been improving with higher employment rates and increases in earnings, the formal employment rate for women is still lower and female weekly earnings are still less than 70% of male weekly earnings.

The research also highlighted that significant barriers continue to prevent women entering the labour market, particularly when it comes to high-paid, secure, quality jobs.

The overall global situation would appear even worse as the most recent Global gender gap report from the World Economic Forum indicates that the gap could take 170 years to close.

In terms of the economic impact, the gender pay gap has been highlighted as a particular issue in relation to the UK’s low productivity problem.

It has been suggested that equalising women’s productivity could add almost £600 billion to the economy, and that 10% could be added to the size of the economy by 2030 if the millions of women who wanted to work could find suitable jobs.

Causes

The gender pay gap has been attributed to four main causes by the Fawcett Society:

  • Discrimination – often women are still paid less than men for the same job and unfair treatment remains common, especially around maternity
  • Unequal caring responsibilities – women continue to play a greater role in caring for family
  • A divided labour market – women are more likely to be in low-paid and low-skilled jobs
  • Men in the most senior roles – men continue to make up the majority of those in the highest paid and most senior roles

Deloitte’s research similarly highlights that women are disproportionately more likely to enter low paid industries or sectors.

However, it emphasises that one contributory factor to the gender pay gap occurs before labour market entry, when boys and girls decide what to study at school and in further education. Three times more boys than girls take computing and 50% more boys than girls study design and technology.

This is significant because the gap in starting salaries between men and women who have studied Science, Technology, Engineering and Mathematics (STEM) subjects, and who go on to take jobs in these sectors, was found to be far smaller.

Way forward

Deloitte’s research therefore suggests that increasing the participation of females in STEM subjects and careers could help reduce the gender pay gap.

Nevertheless, it also notes that as there are several causes, no single measure will be enough to eradicate it.

The government’s policy to introduce mandatory gender pay gap reporting for all large companies employing more than 250 employees has been welcomed as a step forward. But there are concerns this is not enough. The NPI research suggests that it could go further, with extension of the duty to companies employing 50 people.

In addition, encouraging take-up of the voluntary living wage and boosting pay in sectors that have been traditionally low paid and have predominantly employed women are suggested as ways to help speed up the reduction of the gender pay gap.

The NPI report calls for ‘a multi-dimensional policy response, sitting underneath a clear gender focused employment strategy’ to reduce gender inequalities and the subsequent pay gap.


If you enjoyed reading this, why not take a look at some of our other posts on equalities issues

Follow us on Twitter to see what developments in public and social policy are interesting our research team.

The economy and Brexit – what’s next?

money-economics-growth

By Heather Cameron

‘Uncertainty and volatility’ – these were two key terms highlighted at a recent event focusing on the impact of Brexit on the economy, hosted by STEP Stirling.

Following the historic decision of the UK to leave the European Union and all the press that has ensued, it was interesting to hear from experts in the field on what they believe the true impact will be.

Speaker: David Bell, Professor of Economics, University of Stirling

Professor David Bell from Stirling University delivered the first presentation, providing an overview of the key economic implications of Brexit.

David suggested that the negative impacts from a leave vote have not materialised as predicted, noting that “the economics of Brexit has moved at a slower pace than the politics.” Many predicted that there would be an immediate impact on the economy and on consumer confidence, but this hasn’t happened. Retail sales have shown no signs of collapse, with recent research actually showing growth.

Nevertheless, David noted that things were different for businesses, which are experiencing a lot of uncertainty. He indicated that this business uncertainty has dragged UK business output and optimism to a three year low.

What is clear, is that there has been a significant depreciation in Sterling which is unlikely to be reversed in the short to medium term. David considered the implications of this, including that we are poorer, more time will be spent working to benefit smaller businesses, there is lower borrowing costs and it is bad news for pensions.

David also highlighted the issues around the UK’s deficit in goods and surplus in services and trade agreements, which are particularly complicated. To conclude, David acknowledged that negotiations will be difficult and that we will be in the same position for some time to come – with a lot of uncertainty.

Speaker: Craig Wilson, Senior Director Treasury Solutions North England & Scotland at Clydesdale Bank

Following David, was Craig Wilson from the Clydesdale Bank. He considered the impact of Brexit from a financial markets perspective.

To begin, Craig highlighted that what was surprising about the Brexit vote was that ‘the bookies were wrong’, with odds as much as 2/9 suggesting an 82% probability of a remain victory. He noted that the immediate reaction, as similarly highlighted by David, was a drop in Sterling. He said:

“We had a reaction to a recession without the recession taking place.”

Craig also highlighted what has happened since the vote in terms of GBP/Euro stats, interest rate cuts and the price of Brent oil. Interestingly, Brexit hasn’t been shown to have affected commodities as oil prices only dropped slightly and have now increased again.

In agreement with David, Craig argued that there will be a negative impact on the economy in the short to medium term. Economists have cut UK GDP growth going forward to just 1%. Craig suggested that house prices will be important because if they hold up, consumer confidence is likely to remain.

The future, however, was also emphasised as uncertain by Craig. He highlighted that there are lots of variables, both within the UK and abroad, including:

  • UK data
  • Public perception and consumer sentiment
  • Recession?
  • Bank of England monetary policy – will there be more cuts?
  • Negotiations – timing of these, will they be positive or negative?
  • House of Commons/Lords may ignore the vote
  • The US presidential elections
  • US interest rate increases?
  • The Italian debt crisis
  • Emerging markets

In conclusion, Craig suggested the one thing to take away is that so many factors will make the markets volatile.


If you enjoyed reading this, you may also be interested in our other recent blogs on the impact of Brexit:

Follow us on Twitter to see what developments in public and social policy are interesting our research team.

The 24-hour city – the Night Tube launches London into an elite group

london tubeBy Heather Cameron

With the long-awaited launch of the night tube service at the weekend, London has joined a growing number of cities across the globe that offer all-night subway services to varying degrees – including New York, Copenhagen, Berlin, Barcelona and Sydney.

More than 100,000 travellers used the service in its first 48 hours, which was hailed as a “great success” by Transport for London (TfL), and many were impressed with the service.

The new service is being phased in, with trains running all night on Fridays and Saturdays, initially on two out of the 11 lines, roughly every 10 minutes.

Demand

According to TfL, demand for such a night-time service has soared in recent years, with passenger numbers having increased by around 70% on Friday and Saturday nights since 2000. And use of the night bus has increased by 173% since 2000, outstripping demand for all other forms of transport across London.

There has been growth in night-time activities across the UK, which have expanded beyond just pubs, clubs and alcohol-related activities. There has been an increase in the number of flexible venues, casinos, all-night cinemas and gyms. The total value of the night-time economy in the UK has been estimated at £66 billion, employing 1.3 million people.

The night tube is also reportedly driving up house prices, as demand for property near the lines running the service is high.

Who benefits?

Independent research into the economic benefits of the night tube conducted in 2014 estimated that it will cut night-time journeys by 20 minutes on average, with some being reduced by almost an hour. It also found that the night tube could support around 2000 permanent jobs and boost the city’s night-time economy by £360 million – although it is expected to take three years to break even. The benefit-to-cost ratio is estimated at 2.7:1 – meaning it will generate £2.70 for every pound spent.

Other unquantifiable benefits were also identified, including improved commuter journeys for night-time workers, potential for longer operating hours for a variety of businesses and reduced congestion.

Late night revellers will no longer have to rush for the last train, cutting short their nights out. The service could also benefit shift workers and those working in the hospitality industry. Figures from TfL show that more than 50% of people using night buses are going to or returning from work.

But while the potential positive impacts have been emphasised, there have also been concerns raised over potential negative impacts.

Concerns

Residents living near the Central line fear their quality of life, as well as the value of their homes, will be affected by the noise generated by trains running every 20 minutes during Friday and Saturday night. And TfL’s own risk assessment has reportedly highlighted similar concerns.

Alcohol-related anti-social behaviour has also long been recognised as a challenge for the night-time economy. A recent report from the London Assembly notes that alcohol features in a higher proportion of crimes in London that occur at night than during the day. Many of these are concentrated in areas with a strong night-time economy.

So it is no surprise that the Mayor has invested £3.4 million in police funding for the night tube. If the launch weekend is anything to go by, however, it would appear that any dramatic increase in crime as a result of the night tube has not materialised.

Final thoughts

It is of course too early to tell whether the night tube will bring the economic and social benefits to the city as predicted. What is clear is that the night tube supports London in its drive to becoming a truly 24-hour city. And it should be encouraging that other 24-hour subways have been successful, such as those serving New York and Berlin.

The success or failure of London’s night tube could also pave the way for other cities thinking of making the move.


If you enjoyed reading this, you may also be interested in our previous blog on night-time transport infrastructure in global cities.

Follow us on Twitter to see what developments in public and social policy are interesting our research team.

Rising household debt: a real risk to the economy?

pink pig and coins

While household debt is still below its pre-crisis levels, it began to rise relative to incomes in early 2015 and remains high by historical and international standards, according to the Bank of England.

With the current uncertainty surrounding the economy following the EU referendum, there are concerns that household indebtedness could present a big risk to the UK economy.

So what do the statistics mean and just what impact could they have on the economy? A recent House of Commons briefing paper highlights the latest statistics and forecasts for household debt in the UK, including international comparisons, and the effects on the economy.

The statistics

The level of household debt more than doubled from £725 billion in early 2000 to £1,600 billion in late 2008. The global financial crisis resulted in a decline in the household debt-to-income ratio, however, from 168% at its peak in early 2008 to just over 140% in recent years. The levels of debt have increased again over the last couple of years, with annual rates of growth of around 3% recorded since 2014.

The Office for Budget Responsibility (OBR) forecasts that the household debt-to-income ratio will increase in coming years, peaking at 167% at the start of 2020, close to the pre-recession peak. However, this has been revised down on earlier forecasts, such as December 2014, when it was forecast to reach just under 184%.

Despite these increases, the costs of household debt is expected to remain low relative to household income, and much lower than pre-recession levels, due to continued low interest rates. As a result, the debt burden is more affordable for households.

Benefits

The negative effects of debt on individuals has been highly publicised, but low levels of household debt can also provide benefits to individuals and the economy, as highlighted in the briefing paper:

“It allows people to buy things, like a house, that they would not be able to pay for in one go, raising their standard of living. In other words, it allows people to smooth their consumption over time, including during periods when their incomes temporarily fall. This can provide stability to the economy.”

Consumer spending can obviously be good news for retailers and the high street and high levels of mortgage approvals is good for the housing market.

The paper highlights evidence that the accumulation of household debt from 1996 to 2003 contributed to economic growth, with indebted households adding roughly 0.35% points a year to overall consumer spending growth of about 4.5% per year over this period. So a total of 2.5% was added to the level of consumer spending from 1996 to 2003.

Nevertheless, higher levels of debt can make households more vulnerable if an economic downturn occurs. And as the briefing paper shows, the households most likely to have debt (excluding mortgages) are those in the lower wealth quintiles – who are already vulnerable.

Economic impact

As the Bank of England has warned, the ability of some households to service their debts would be challenged by a period of weaker employment and income growth, which could have a wider economic impact through reduced expenditure. And higher interest rates may also lead to further reductions.

This could then have a knock-on effect on businesses which, faced with reduced revenues, may have to cut back on costs such as labour costs by reducing wages or the workforce.

Indeed, research on the impact of household debt on the economy highlighted in the briefing paper suggests that large increases in household debt prior to recessions tend to lead to longer and more severe downturns. And this is as a result of households with high debt levels cutting back on their spending by more than other households during and after a recession.

According to a 2012 OECD working paper, high debt levels can create vulnerabilities by impairing the ability of households and companies to smooth their spending and investment.  The paper also found that when household debt levels rise above trend, so does the likelihood of recession.

Other research has also found that large increases in household debt have preceded more severe and protracted recessions. And recovery following a recession was found to be typically slower in countries that carry the legacy of a large private credit boom.

Final thoughts

So it would seem that perhaps a certain extent of household indebtedness is good for individuals and the economy, in terms of maintaining growth. But when it rises above a certain level in relation to incomes, the evidence suggests it becomes a serious concern.

And with the current economic uncertainty, increasing household debt isn’t something to be ignored.


­­­­­­­­­­­­­­­­­­­­­Follow us on Twitter to see what developments in public and social policy are interesting our research team.

EU referendum – what the think tanks are saying

Euro Flag iStock_000003625536MediumBy Heather Cameron

With just under a month to go until the UK goes to the polls for the EU referendum, we take a look at what some of the major think tanks have been publishing on the debate.

Immigration and the economy have featured heavily in the referendum campaign. Negative attitudes to immigration, and in particular free movement within the EU has been highlighted as the strongest predictor of opposition to UK membership of the EU. And the possibility of a negative impact on the economy in the event of a ‘leave’ vote has been widely highlighted by the ‘remain’ campaign. Obviously, many of the think tanks have a specific agenda or political leaning, and this is reflected in how they are responding to the Brexit question.

What the think tanks are saying

Civitas has published a number of reports on Britain’s EU membership and how an exit from it would not damage the economy the way some would have us believe. Its most recent report on the trade benefits of EU membership has branded the argument that the European Single Market provides huge trade benefits to the UK as a ‘myth’.

Highlighting the example of Switzerland, Civitas has also argued that Britain could have much to gain from leaving the EU in terms of trade as it would be free to organise its own deals without EU restrictions.

Nevertheless, it also implies that retaining free trade with the EU Single Market, similar to the circumstances of Switzerland and Norway, would be important.

Others that appear to back ‘Brexit’ (Britain’s exit from the EU) have also alluded to the potential importance of the Single Market for trade. According to the Adam Smith Institute (ASI), the only viable option for the UK following a vote to leave the EU is joining the European Economic Area (EEA). This involves participation in the Single Market but from a position outside the EU. It allows for the free movement of goods, capital, services and people with the rest of EU.

Research on the referendum by the National Institute of Economic and Social Research (NIESR) has also covered the economic impacts of a decision to leave, in addition to immigration and the financial sector.

Unlike Civitas, NIESR has warned of ‘a significant shock to the UK economy’ if there is a vote to leave the EU, assuming the UK will no longer have a free trade agreement. NIESR analysis suggests that the impact would include lower Gross Domestic Product (GDP), a depreciation of Sterling, reductions in trade and foreign direct investment (FDI), and a potential fall in consumption and real wages.

Similarly, the Centre for Economic Performance (CEP) has argued that Brexit would have a negative effect on FDI. It estimates that Brexit would lead to a 22% fall in FDI over the next decade, which could cause a 3.4% decline in real income – about £2,200 of GDP per household.

Also in its analysis, CEP argues that leaving the EU would lower trade between the UK and the EU because of higher tariff and non-tariff barriers to trade. It suggests that the UK would also benefit less from future market integration within the EU. And while it acknowledges the economic benefit of a lower net contribution to the EU budget in the event of a vote to leave, it also suggests that incomes would inevitably fall, offsetting any savings from reduced fiscal contributions to the EU budget: “we consistently find that by reducing trade, Brexit would lower UK living standards.”

In terms of immigration, recent NIESR research suggests that there has been relatively little impact on the UK so far but that a vote to leave the EU could dramatically change immigration and its impact. One article looking at the long term economic impact of a reduction in migration found that a significant reduction in net migration would have strong negative effects on the economy by reducing GDP and thereby impacting on public finances.

The Institute for Public Policy Studies (IPPR) has published a range of material on the immigration and free movement issue. Its most recent report highlights the importance of the issue of EU migration in relation to the upcoming vote. The study found that there are concerns around migrants’ access to welfare, pressure on public services, crime and personal security, and wage undercutting. But at the same time, the advantages of free movement were also noted, in particular opportunities for UK citizens to live and work easily in other EU countries and the benefits of EU migrants filling skills gaps.

Similarly, the Fabian Society has also highlighted the importance of the immigration issue, noting that more than half of voters select it as one of their top three concerns when thinking about the referendum. In testing the effectiveness of both arguments, it was found that while the ‘remain’ campaign is slightly ahead and does well on first impressions, the ‘leave’ arguments seem to have more power to persuade.

Final thoughts

Full Fact is attempting to independently check statements made by both sides of the campaign. But whatever the outcome, we are guaranteed that Europe will continue to be a talking point after 23 June.


If you enjoyed reading this, you may also like our previous posts on political participation and the role of social media and voter turnout.

Follow us on Twitter to keep up-to-date with developments in public and social policy currently interesting our research team.

Idox Elections is one of the premier election service providers in the UK, providing expertise and knowledge across all areas of election management.

Budget 2016 – 5 messages for local government

One pound coin on fluctuating graph. Rate of the pound sterling

By Heather Cameron

Last week George Osborne revealed the details of his 2016 Budget, at the centre of which was a major deterioration of the forecast for productivity growth. Last year, the Office for Budget Responsibility (OBR) projected an average growth in productivity per hour of 1.9% between 2015-16 and 2020-21; that average is now 1.7%.

As a result, a further £3.5 billion of savings from public spending is to be found in 2019/20. While Osborne has suggested these savings are equivalent to 50p in every £100 the government spends, experts have warned that the figure is closer to £2 or £3 for services that haven’t been protected.

What does it mean for local government?

Despite no direct cuts for local government, it remains unclear where these savings will come from. And with ring fencing of much public spending, local government may yet again bear the brunt of these cuts one way or another.

Business rates

Concerns have been raised over the announcement to extend business rate relief, the revenue from which is 50% retained by councils. It was revealed that this will remove £7 billion from the total take in England over the next five years; 600,000 small businesses will pay no rates at all from next year.

While good news for small businesses, there are fears it could leave a huge hole in local government finances as all locally raised business rates are to be fully devolved by the end of 2020. This will be accompanied by the phasing out of central government grants, and the devolution of additional spending responsibilities.

The government says that “local government will be compensated for the loss of income as a result … and the impact considered as part of the government’s consultation on the implementation of 100% business rate retention in summer 2016.”

But details of how such compensation will work remain unknown. The Institute for Fiscal Studies (IFS) has suggested that the government’s plans for reimbursing local government is “nigh on impossible”.

According to the Joseph Rowntree Foundation (JRF), if protection for council budgets isn’t extended to beyond the devolution of business rates, councils stand to lose £1.9bn per year, or 2.9% of their total revenues.

Benefits cuts

Further cuts to welfare spending could also have a knock-on effect. The Chancellor outlined controversial plans to reform Personal Independent Payments (PIP) for disabled people, to save £1.3 billion. Overall, £4.4 billion will be cut from benefits for disabled people over the course of the parliament.

The cuts to PIP have been described as ‘devastating’ for disabled people, with many relying on them to live independently. They could therefore lead to increasing pressure on already stretched local services.

Even the government’s own party members criticised these cuts, which have since led to the shock resignation of Iain Duncan Smith and a government U-turn on the reforms to PIP, which will now not go ahead.

But there is no alternative plan to fill the hole left by this U-turn so local government may still need to brace themselves for cuts elsewhere.

Education

Under the education reforms, every state school in England is to become an academy by 2020 or have a plan in place to do so by 2022, ending the century-old role of local authorities as providers of education.

But, as our recent blog has highlighted, there are ongoing concerns over the academy programme with little evidence to justify it.

The plans have been criticised by councils and teaching unions. Chairman of the Local Government Association (LGA) children and young people board, said:

We have serious concerns that regional schools commissioners still lack the capacity and local knowledge to have oversight of such a large, diverse and remote range of schools.”

Ofsted rated 82% of council maintained schools as good or outstanding, while the results of recent HMI inspections of academies has been described as “worrying”. The findings also highlighted a “poor use of public money”, something that has been reiterated by the LGA.

In response, the LGA noted that “councils have been forced to spend millions of pounds to cover the cost of schools becoming academies in recent years”.

Devolution deals

There was some better news for local government in the form of new devolution deals with the West of England, East Anglia, and Greater Lincolnshire. The West of England and East Anglia will each receive a £900 million investment fund over 30 years to boost economic growth, while Greater Lincolnshire’s deal is worth £450 million.

New powers over the criminal justice system are also to be transferred to Greater Manchester and business rates are to be fully devolved to the Greater London Authority next year, 3 years before everyone else.

The LGA welcomes these deals as recognition of the economic potential of all local areas and calls for a return to the early momentum in which similar deals were announced last year.

Flood defences

Another positive for local government was the £700 million funding boost for flood defences by 2020-21, including projects in York, Leeds, Calder Valley, Carlisle and across Cumbria, to be funded by a 0.5% increase in the standard rate of Insurance Premium Tax.

Considering the extent of recent winter flooding, this was welcomed by local government as a “step in the right direction”.

However, the LGA has stated that councils will need further help from government once the full cost of recent damage emerges. It has also called for flood defence funding to be devolved to local areas so the money can be spent on where it is really needed.

Final thoughts

So despite no direct cuts for local government, and the welcome boost to local economies and flood defences, it remains to be seen whether local government will lose out financially in the longer term.


Read our related blog on the total academisation of schools.

Follow us on Twitter to see what developments in public and social policy are interesting our research team.